Looking Ahead: What Open For Business Means To Us

By Andy Kangpan on April 11, 2020

Over the past few weeks, we have been speaking to many investors and founders to hear how people have been managing their portfolios and businesses, and to share our own thoughts on how we are approaching the current climate. The most common question we have been getting from investors and founders alike is: “Are you open for business?” 

You’ll see no shortage of investors and VC firms on social media proclaiming yes, but the answer to this question is likely much more nuanced. Some have made the case for why we should expect a massive drop in funding over the next few months, or why it’s more likely that firms will prioritize their time, attention, and capital on existing portfolio companies.

While the above may be true to differing extents (and there’s no doubt that it will be a more difficult environment to raise capital in), I thought it would be useful to share our perspective so that entrepreneurs and VC investors alike can get insight into the conversations our team has had over the past few weeks. Our goal is to support entrepreneurs who have the passion and perseverance to make the world work better. While we have many things to get used to in this time (such as building relationships over Zoom!), this goal has not changed. So yes, we are open for business, and we continue to look forward to leading new investments in this current environment. In fact, we recently issued our first term sheet post-crisis.

Even more, while there continue to be many challenges in front of us, we continue to be excited about the years ahead. I wanted to outline some observations on what we are seeing in the landscape today, some thoughts on what may happen in the next few years, and why we continue to be excited to meet with founders and help them get their businesses off the ground.

Accelerating Trends

We are seeing fascinating shifts in behavior that accelerate many ongoing trends we have been following. In some parts of the technology landscape, pressure to quarantine mass portions of the population have driven the relevance of products and services that have slowly been gaining prominence over the past decade.

A clear example is the dramatic adoption of remote work, which has been catalyzed by governments and corporations around the world urging non-essential employees to work at home. This shift has driven dramatic growth of many tools such as videoconferencing apps, and chat-based communicating platforms. A recent report by App Annie showed that global downloads of videoconferencing applications reached 62 million from March 14-21, and that global downloads of business apps grew 90% compared with the same time period in 2019.

Another example that is beginning to take shape is a sharp uptick in demand for cloud services. As employees become primarily distributed, many companies are seeing the benefit of having their infrastructure and business applications run in the cloud. As an example, Microsoft recently reported a significant spike in usage for their cloud services, and also noted that demand for Windows Virtual Desktop has grown more than three times. We expect these trends and many others to continue to accelerate over the next few years.

Bending Behavior

There will no doubt be significant changes in behavior over the next few years, many of which will have an adverse effect on the world as we know it. These shifts will be painful. However, we expect that many of these behaviors to bend back to normal over time.

One of the most pressing challenges we see stems from record unemployment figures (about 6% of the US labor force for the week of 3/30), driven by the effective closure of many sectors in our economy. This means as a whole we will have significantly less discretionary income to spend on products and services that do not satisfy our basic needs. In the near term, this will test the resiliency of many startups who are just getting off the ground and built their business on consumption patterns that simply will not hold true.

Another example is the almost immediate stoppage of travel brought on by international travel bans, and the responsible decisions by millions of people who are sheltering in place to help prevent the spread of COVID-19. This will have second order effects on a number of startups, such as those in the hospitality and travel space, that are reliant on a steady flow of business and personal travel to drive demand for their businesses. 

We will also likely expect to see longer sales cycles and smaller budgets, as customers focus on cost and cutting spend, but these are all examples of temporary hurdles. We do not expect consumer behavior and enterprise IT spending to snap back once quarantines are lifted (on the contrary, we expect it will take some time for consumers and businesses to get back to the same level of spending that we were seeing prior to this crisis), but overtime there will be a reversion to the mean.

Enduring Paradigm Shifts

While we do believe the world will move slowly back to normal over time, crises such as the one we are in now undeniably create enduring changes that persist forever. We do not know what the future will exactly look like, but we are certain that our world will undergo fascinating and unforeseen paradigm shifts. These changes are creating the conditions for the next generation of startups.

And even though the world is in upheaval, we are certain that there are countless entrepreneurs looking at these changes ahead of us, and thinking of ingenious ways to use technology as a way to make things work better. We admire this spirit, and believe it will endure the tumultuous times we currently live in.

We do not know exactly where the next generation-defining company will come from, and frankly, we are skeptical any investors really do. However, we are excited to meet this next generation of entrepreneurs who already see these big opportunities emerging, and are gearing up to build the next big thing. 

While we live in a rapidly changing world, and believe there are many challenges that lie ahead, we feel grateful to have the opportunity to support entrepreneurs who will navigate this new normal. So, yes, we are open for business, and we are excited for what lies ahead.

The views expressed herein are solely the views of the author(s), are as of the date they were originally posted, and are not necessarily the views of Two Sigma Ventures, LP or any of its affiliates. They are not intended to provide, and should not be relied upon for, investment advice. Two Sigma Ventures, LP or any of its affiliates does not make any representation or warranty, express or implied, with respect to the fairness, correctness, accuracy, reasonable or completeness of any of the information contained herein. Your linking to or use of any third party websites is at your own risk. Two Sigma Ventures disclaims any responsibility for the products or services offered or the information contained on any third party websites.